Tom Sowell: Restoring Free Markets Is the Way to Fix Healthcare

As usual, Tom Sowell uses basic economics to explain a confusing topic. His core insight is that government has undermined market forces, which is leading to rising costs. Obama and the other statists somehow think more government will make things better:

…policies based on political hype over the years are what have gotten us into what is most wrong with medical care today– namely, the way it is paid for. Insurance companies or the government pay directly for most of the costs of most medical treatment in the United States. That is virtually a guarantee that more people will demand more medical treatment than they would if they were paying directly out of their own pockets, instead of paying indirectly in premiums and taxes. Since people who staff either insurance company bureaucracies or government bureaucracies have to be paid, this is not bringing down the cost of medical care, but adding to it. What also adds to the costs are politicians at both state and federal levels who mandate additional benefits to be paid for by insurance companies, thereby driving up the cost of insurance. If medical insurance simply covered risks– which is what insurance is all about– that would be far less expensive than covering completely predictable things like annual checkups. Far more people could afford medical insurance, thereby reducing the ranks of the uninsured.

17 Responses

[…] Promote genuine free market principles. The only way to fix healthcare is to restore the free market. That means going back to a system where people pay out-of-pocket for most healthcare and use […]

Why is it that every developed country in the world can pay for health care but the US the ‘richest’ and supposedly most innovative country in the world, the ‘leader’ of the free world can not get its head out of its fourth point of contact and provide for its people a health care system that accually helps them stay healthy?
What he is proposing is that the medical industry and I do mean INDUSTRY nickle and dime us to death with the list of indiviual fees that will be imposted on us to subsidize the quarterly increases of the drug companies who use the health care system and the media to pettle unsafe drugs for a profit.
What he is proposing is that those who can’t afford to pay for health care now to be left out because they don’t have the money to pay for the cost of the 120.00 office visit that most physicians require. He proposes that those who can’t afford their medications to go without and suffer. He is proposing that if you are not able to pay for good health care you should do without and just suffer. That is the of a free market health care.
What he is proposing in the access to health care for those who are rich enough to afford it and slide back into the 18th century and look like a third world coutry. This is the same as leaving access to education to those who can afford it. What he is proposing is class based health care… if you have to ask the price, you can’t afford it and if you can’t afford, you don’t need it.

Countries that provide the most important things in life (health, education, retirement) unconditionally to their citizens have low growth rates. Actually, it is worse than that. They generally have low growth rates in spite of having populations that are more competent than the average American. Case in point, the very talented Europeans who are permanently condemned to 1-2% growth rates as they squander their superior talent under their welfare states.

The micro-economics of this are rather simple. When the most important things in life are provided to you unconditionally, few talented people are addicted enough to perks and riches to work for more. Especially when most of the fruits of their extra labor will be harvested to provide health services, education and retirement to others, rather than benefit themselves or their families directly.

Many people advocate that the low growth rates are the price to pay for unconditional and equal access to services such as health, education and retirement. They contend that an egalitarian society that grows at 2%, is better than a more unequal one that grows at 4%. The argument is understandable when viewed in the narrow time horizon of the next 1,2, 5 years. “What do I care what the GDP growth rate will be next year if I can have someone else pay for my health, education and retirement”.

The problem is what happens in the longer term. Had we, as humans, settled for 2% growth in the past 100 years, we would now be 7 times poorer ((1.04/1.02)^100) and have a life expectancy around 50-60 years. Life on earth would still be stuck in the 1950s, since 100 years of 2% growth would have only brought us to the point where 50 years at 4% growth brought us.

So, a more appropriate comparison is a society where everyone has access to 1950s level of health services vs. one where people have uneven access to 21st century health care services. If you think how much less people lived in the 1950s then you see how many more life years the uneven 4% growth rate “saves”. And, in many ways, poor 21st century healthcare is probably better than universal healthcare in the 1950s.

Devising, say, new cancer cures is exceptional – and exceptionally hard work. Ultimately, if you want exceptional people to dedicate their life and vitality to finding a cure for your cancer, you have to give them exceptional compensation. Otherwise very few people will do it. And yes, that includes extravagant toys like Porshes and 4000 sqf houses. For better or for worse, there is simply no way to enslave superior talent to work for the whole for little compensation. They will either work less or, if forced to work, they will be “much less than they can be”.

In a free market, medical costs would be lower and thus buying health services would be more affordable for the lower class. How many people are truly incapable of making the 5-10K that it would cost to buy health insurance/services? And mind you, in a freer economy salaries would be higher, just like salaries are higher in the freer US vs. the more centrally planned egalitarian Europe. Yes, poorer people would still have to make sacrifices to buy health insurance, like driving a Corolla rather than an Audi, and indeed many will have different priorities, will buy a Lexus instead and go without health insurance. While that may not be my choice, I still do not think I should intervene. Now if you offer the healthcare for “free” (i.e. paid by someone else’s effort) then they are even more likely to buy the Lexus – at least until overall productivity drops and the average car becomes the Corolla, just like in most of Europe.

Yes, you may say, but aren’t there still SOME people who just cannot do enough work to buy basic health insurance? Yes there are, but these people are perhaps 3% of the population not 60%. Perhaps some arrangements should be made for that 3% and these arrangements, and more, we do already have: disability, Medicaid, charity.

So rather than complain how come the US, being the most prosperous country on earth does not provide unconditional subsidies to health, education and retirement, the better question is whether perhaps – just perhaps – the US may be the most prosperous nation on earth, in spite of its less competent citizenry, exactly because it does not blunt incentives to do high value work by offering unconditional subsidies to health, education and retirement.

The answer to this last question will come rather soon. Perhaps within the next 15 years as the US seems to be adopting the welfare state model. Interestingly these comments are likely to still be here to read 15 years from now.

[…] insights, I’ve highlighted more of his work here, here, here, here, here, here, here, here, here, here, here, here, and here. And you can see him in action here. A truly gifted public intellectual […]

[…] Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. […]

[…] Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. […]

[…] Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. […]

[…] Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. […]